Statutory Accounting Princples (E) Working Group
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Summer 2009 Meeting Summaries Index

NOTE: Minor revisions were made to this summary on 6/16/09.

The Statutory Accounting Principles (E) Working Group of the Accounting Practices and Procedures (E) Task Force met June 13, 2009.

During this meeting, the Working Group:

• Addressed the following significant items: 

• Separate Account Subgroup (Ref # 2007-27)  The Subgroup requested that the Working Group submit a referral to the Financial Condition (E) Committee requesting the establishment of a new Model Law, to require risk charges for individual separate account products. It was noted that there is no current regulatory guidance that requires the establishment of risk charges for individual separate account products that are guaranteed by the general account, and that the Subgroup identified this to be a matter of concern for solvency regulation.

• FSP FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and 124-2) (Ref #2009-07) The Working Group directed staff to begin drafting an issue paper for the development of a new SSAP to incorporate guidance from FSP FAS 115-2 and 124-2, but recognizes they may elect to reconsider this direction if it is determined that certain items are deemed inappropriate for statutory accounting. Items that will be included for statutory consideration include: (1) modification of the OTTI trigger for credit-related impairments. For debt securities, the triggers will include an assessment of whether it is more likely than not that the reporting entity will be required to sell the security before the recovery of its cost basis; (2) establishment of guidance to bifurcate credit and other-than-credit impairments, with only credit related OTTI impairments being reflected as realized losses, unless there is an intent to sell; and (3) guidance to supersede terminology within existing SSAPs so that the assessment of the collectability of cash flows is modified to reflect “the recovery of the entire cost basis of the security” in order to clarify that an entity should not wait for an event of default or other actual shortfall of cash to conclude that some or all of the cash flows are not likely to be collected. The Working Group also heard unsolicited comments requesting significant modifications to the GAAP guidance.

• Issue Paper No. 138—Fair Value Measurements (Issue Paper No. 138) (Ref# 2007-24) The Working Group exposed Issue Paper No. 138 to define fair value, establish a framework for measuring fair value and expand disclosures about fair value. This Issue Paper proposes adoption, with modification of FAS 157, Fair Value Measurements (FAS 157). Modifications from FAS 157 include rejection of the GAAP provision to include consideration of own-credit risk in determining the fair value of a liability. The Issue Paper proposes adoption of the FASB definition of fair value, the three-level fair value hierarchy and proposes adoption of FSP FAS 157-4: Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. 

• Adopted as final the following Statutory Accounting Guidance:

• SSAP No. 91R—Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 91R) (Ref #2009-02)

Revisions to SSAP No. 91R adopt guidance from FSP FAS 140-3: Accounting for Transfers of Financial Assets and Repurchase Financing Transactions, which provides accounting guidance for a transfer of a financial asset and related repurchase financing.

• Adopted as final the following Statutory Account Revisions rejecting GAAP guidance as Not Applicable in Issue Paper No. 99—Nonapplicable GAAP Pronouncements:   

• FSP FAS 117-1: Endowments of Not-For-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds  (Ref #2009-01)

• Statement of Position 07-2: Attestation Engagements That Address Specified Compliance Control Objectives and Related Controls at Entities That Provide Services to Investment Companies, Investment Advisors, or Other Service Providers (Ref #2009-04)

• Statement of Position 07-1: Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies) and FASB Staff Position 07-1-1, Effective Date of AICPA Statement of Position 07-1  (Ref #2009-05)

• Exposed the following substantive revisions to Statutory Accounting Guidance:

• Issue Paper No. 135 (Ref# 2003-12)

Issue Paper No. 135—FIN 45: Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, 107 and rescission of FASB Interpretation No. 35 (Issue Paper No. 135) proposing guidance to require reporting entities to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee. The proposed guidance has been modified from FIN 45 to require liability recognition for intercompany or related party transactions, unless such transaction is considered an “unlimited” guarantee.

• Issue Paper No. 137 (Ref# 2008-28)

Issue Paper No. 137—Transfer of Property and Casualty Reinsurance Agreements in Run-off (Issue Paper No. 137)  and changes to SSAP No. 62—Property and Casualty Reinsurance to expand the exception to retroactive accounting treatment to include property and casualty reinsurance run-off agreements that meet specified criteria as modified during the meeting. Reinsurance agreements and retrocession agreements that meet insurance risk transfer requirements and meet the specified criteria will receive prospective accounting treatment.  In addition, these exposed changes were referred to the Property and Casualty Reinsurance Study Group of the Accounting Practices and Procedures Task Force for further discussion.

• Issue Paper No. 138 (Ref# 2007-24)

Issue Paper No. 138—Fair Value Measurements (Issue Paper No. 138) as discussed above.

• Exposed the following nonsubstantive revision to Statutory Accounting Guidance:

• SSAP No. 60—Financial Guaranty Insurance (SSAP No. 60)  (Ref # 2009-09)

Exposed revisions proposing the incorporation of several disclosures within SSAP No. 60. These disclosures are similar to the intent of disclosures within FAS 163, Accounting for Financial Guarantee Contracts (FAS 163), but have been modified to be applicable under current statutory accounting guidance for financial guarantee insurance contracts. It is planned that enhanced disclosures for financial guaranty contracts will be adopted for 2009 reporting.

• Rejecting FSP SOP 94-3-1 and AAG HCO-1, Omnibus Changes to Consolidation and Equity Method Guidance for Not-For-Profit Organizations (FSP SOP 94-3-1) – (Ref#2009-08) as Not Applicable in Issue Paper No. 99—Nonapplicable GAAP Pronouncements.

• Conducted the following other actions and discussions on substantive issues:

• Proposed New SSAP No. 92—Accounting for Postretirement Benefits Other Than Pensions and SSAP No. 100—Accounting for Pensions, A Replacement of SSAP No. 89 (Ref#2006-30)

Directed staff to consider comments received from the exposure of these proposed SSAPs, and make modifications as considered appropriate for statutory accounting.

• Consider Increase in Admission of Deferred Tax Assets Related to Capital and Surplus Relief (EX) Working Group Recommendation  (Ref #2009-06)

Received comments on the exposed substantive revisions regarding admission thresholds for deferred tax assets. The Working Group agreed to defer this issue.

• Deferred Premium Asset and the Unearned Premium Reserve (Ref #2009-10)

Directed staff to move this item to the Substantive Active Listing and deferred further discussion until a joint call with the Life and Health Actuarial Task Force.

• Conducted the following other actions and discussions on nonsubstantive issues:

• Accounting Practices and Procedures Manual Content Changes (Ref #2009-11)

        Formed a subgroup to consider changes to the Accounting Practices and Procedures Manual to address changes necessitated by current projects such as FASB Accounting Standards Codification, the Principles-Based Reserving project and to address possible content structure improvements.
  

• Fund Demand Disclosure for Institutional Business (Ref # 2004-27)

        Securities and Exchange Commission (SEC) research completed by NAIC staff noted that the SEC disclosures were at a high level and not specific for the intent of insurance regulators. Additional information from interested parties will be provided.   

• Received subgroup updates: 

• Financial Guaranty Contracts Subgroup (Ref # 2008-20) The Subgroup referred to their agenda submission form (Ref # 2009-09) proposing disclosures to SSAP No. 60. The Subgroup will continue discussion on their remaining charges over the third quarter.

• Guaranty Fund Subgroup (Ref # 2006-14) The Subgroup will receive a presentation from the National Conference of Insurance Guaranty Funds at its next meeting, as well as discuss the state survey on prospective-based premium assessments.

• Fair Value Subgroup (Ref # 2007-24) The Subgroup requested that the Working Group consider exposing this Issue Paper No.138 for public comment. The Subgroup noted that they are willing to evaluate comments or questions received from a public exposure.

• Separate Account Subgroup (Ref # 2007-27) The Subgroup requested that the Working Group submit a referral to the Financial Condition Committee requesting the establishment of a new Model Law, as described in significant items above. The Subgroup is working to finalize disclosure requirement revisions to SSAP No. 56.

• Securities Lending Subgroup (Ref # 2008-14) The Subgroup advised that they have held several conference calls and will continue calls during the third quarter. 

• Received an update on Principles-Based Reserving.

• Received an update on International Accounting.

• Received the response from the Valuation of Securities Task Force on Life Settlements.

The deadline for submission of comments and for new items is Aug. 7, 2009.

Action Items:

• Approved a referral to the Financial Condition E Committee on a possible model law project

• Adopted as final revisions regarding accounting for transfers and repurchasing transactions and rejecting four agenda items as not applicable to statutory accounting.

• Exposed three issue papers, and two nonsubstantive changes for comment.

• Directed staff to begin several projects including drafting an issue paper on the bifurcation of other than temporary impairment recognition.

• Formed a subgroup to look at changes to the Accounting Practices and Procedures Manual structure.

• Received reports of its subgroups and updates on principles based reserving and international accounting and a response on a referral.